Charges give black eye to oil and gas industry ILLEGAL DUMPING

WHEN IT WAS FIRST LEARNED THAT HUNDREDS OF THOUSANDS OF gallons of oil, brine water and drilling waste were dumped into the Mahoning River, the weeks that followed saw public outrage, political backlash and speculation.

State and federal regulators soon launched a criminal investigation, probing D&L Energy and Hardrock Excavating owner Ben W. Lupo’s decision to instruct an employee Jan. 31 to dump storage tanks full of the waste into a storm drain at the companies’ headquarters on Salt Springs Road.

It was discovered that a dark, oil-like substance had made its way through the storm-sewer system, discharged in a nearby creek and then into the river.

Lupo is charged with one count of violating the U.S. Clean Water Act, to which he waived his right to a preliminary hearing and put himself in the hands of a federal grand jury. Court papers showed that it was possible he had instructed such dumps on as many as 20 separate occasions.

Collectively, those in Ohio’s oil and gas industry began the painstaking process of damage control to disassociate themselves from the black eye that Lupo’s operation had become on the face of the state’s emerging business.

“I don’t think the industry should be vilified because of it. The public looks at this and says, ‘There you go,’ and people have a natural tendency to do that,” said Thomas E. Stewart, executive vice president of the Ohio Oil and Gas Association, an organization with a strong presence in Columbus.

“This is not indicative of how others do business — it’s not in the best interest of the industry,” Stewart added. “We have to protect the environment.”

In the short time since a coterie of oil and gas companies first began to quietly lease land in 2009, the Ohio Department of Natural Resources has recorded 242 horizontal wells drilled into the state’s Utica Shale formation, while 529 permits have been issued as well.

Now, a little more than three years into the shale play, the marked uptick in activity means the public and the politicians elected to represent it are paying closer attention to the industry’s operations, which continue to expand throughout eastern Ohio.

The U.S. Energy Information Administration said crude-oil production in the country increased by 790,000 barrels per day between 2011 and 2012, the largest increase in annual output since the beginning of U.S. commercial oil production in 1859.

Projections by the agency show that crude output will increase from 7.25 million barrels per day this year to 7.82 million in 2014, the highest annual average level since 1988.

Most of the U.S. production growth over the next two years will come from drilling in tight rock formations such as those located in North Dakota, Texas, Pennsylvania and Ohio.

On one hand, Ohio’s public should recognize that the shale play is here to stay.

On the other hand, the industry has reached a turning point in Ohio. In this sense, Lupo’s decision to continuously dump into a public waterway was not just an affront to his own self-interest, but the interest of an industry that presents vast opportunities for the state.

“There’s no question the industry is trying to protect itself — this is a very sensitive issue,” said Jack Shaner, senior director of legislative and public affairs for the Ohio Environmental Council, a nonpartisan advocacy group focused on public policy. “It soiled their attempt at a white-glove approach. Hollywood couldn’t have scripted a worse event, and now they’re back on their heels.

“The polish and luster is beginning to tarnish. Before, it was a preview of coming attractions and, like a Hollywood trailer, it took the best scenes and put them up, suggesting a rush of jobs and direct investment,” Shaner added. “Now that the circus is beginning to come to town, we’re seeing more spills, trucks overturned, illegal dumping, and the audience is beginning to see a bigger picture — they don’t like what they’re seeing.”

Stewart said he recognizes that opposition to hydraulic fracturing, or fracking, is an “evident pattern across the U.S.” Until recently, push back against the industry was apparent only in the inner Mountain West and in Colorado toward the northern border, in those cases though, he said, “The rest of the country wasn’t paying attention.”

Today, extensive drilling operations in North Dakota, Texas and Pennsylvania, coupled with a fervent debate on horizontal drilling in New York is quickly turning fracking into one of the country’s hot-button energy issues, not just for its promise, but for its dangers as well.

January’s illegal-dumping incident took place in Youngstown, a city long billed as a home for environmental scofflaws, with its history of steel mills and their tendency to dump industrial waste into public waterways such as the Mahoning River.

Lupo’s history of violations as an injection-well operator, coupled with his decision to instruct multiple brine dumps in Youngstown, not only infringed on the millions of dollars spent over decades to restore the river, but it also struck near the front lines of the Utica Shale play, with its epicenter of activity in Columbiana and Carroll counties.

If the past six months or so have been any indication, the center of that activity is poised to spread north into Mahoning and Trumbull counties.

“The only way oil and gas can succeed is by drilling new wells to replace your reserves,” Stewart said. “If you don’t do it, you cannibalize your business. You’re always somewhere new, and if all you do is trash the place, you won’t be able to conduct an essential part of your business. It’s like committing suicide.”

In the coming years, as the high-productivity portions of the Utica formation, or sweet spots as they’re called, are depleted, drilling activity will turn to its less-productive portions, requiring more well completions just to maintain production levels.

Recognizing that production will inevitably increase, and, more importantly, in response to the shock waves that were sent to the Statehouse in the aftermath of the dumping incident, new legislation has been proposed to give regulators a stronger hand in dealing with the industry’s violators.

State Sen. Joe Schiavoni of Boardman, D-33rd, in cooperation with the Ohio Attorney General’s Office, Gov. John Kasich and Republican lawmakers, is working to draft a so-called “scarlet letter” law.

Under the legislation, penalties for first-time violators would increase, and future operating permits would be nearly impossible to obtain if a violator knowingly breaks the law.

State Rep. Robert Hagan of Youngstown, D-58th, also will introduce legislation that requires regulators and emergency responders to immediately notify elected officials when hazardous materials are spilled. Hagan has called for a severance tax on oil and gas producers aimed at paying for more inspectors. His proposal is well above what Kasich recently called for in his two-year budget.

It wasn’t just Lupo’s decision to ignore state law and dump hazardous pollutants in the river that triggered the latest legislative response — it was his history of more than 120 environmental violations at 32 injection and extraction wells across Ohio and Pennsylvania that truly seemed to force the hands of lawmakers.

Lupo was repeatedly issued permits. Under current law, those with repeat violations are allowed to receive operating permits as long as their applications are in good standing with the Ohio Department of Natural Resources.

Though Shaner said his organization applauded regulators for revoking the operating permits of D&L and Hardrock, he said more needs to be done.

“Ohio is a weak enforcer, not withstanding this latest response of course, but the state has a weak history of enforcement,” Shaner said.

A report released in September by Earthworks, a national nonprofit dedicated to environmental advocacy, claimed that regulatory enforcement actions against the oil and gas industry are in a state of crisis across the country.

Researchers found that between 53 percent and 91 percent of wells in the six states studied, including Ohio, aren’t inspected. The report also found that violations are either rarely enforced or not documented at all.

In 2010, it was found that Ohio regulators failed to inspect more than 58,000 wells, or 91 percent of the state’s active wells. The next year, according to Earthworks, only $73,935 in fees were collected from Ohio’s oil and gas violators.

But Dan Alfaro, a spokesman with industry outreach group Energy InDepth, said many of the state’s wells have been “humming along” with little problems for 20 years or more. They don’t require the same level of inspection, he said.

Alfaro noted that Senate Bill 165 and Senate Bill 315, two pieces of sweeping legislation that deal entirely with the state’s energy policies, provided the framework that allowed ODNR to revoke the permits of D&L and Hardrock.

The laws require oil and gas companies to pay a certain percentage on their production to ODNR so that it can enforce and properly regulate the industry.

In response to the questions raised over the agency’s regulatory scope and how closely it had watched Lupo’s oil and gas operations over the years, Bethany McCorkle, an ODNR spokeswoman, said more than 100 employees work for the agency, 38 of which are inspectors who visit well sites once every four or five weeks.

“With the passage of SB 315, the Division of Oil and Gas Resources Management was given the authority to fine operators on a daily basis when they are found in violation,” she said. “We are in the process of reviewing current law to see where modifications could be made that would allow ODNR to evaluate past violations and the severity of the violations before issuing a permit.”

The law aside, Alfaro was quick to point out one punishing aspect of a widely reported incident such as the one that played out in Youngstown — guilt by association.

“BP, Chesapeake and Consol are some of the bigger companies operating here right now,” he said. “They do not operate like that. It’s hard for people to disassociate the responsible larger companies from a small guy like Lupo. People don’t distinguish between their state representative, their congressman or their senator. To them it’s just government, and that’s what’s bad about this — it’s kind of the same thing.”

The news of Lupo’s orders to dump wastewater into a major river spread from the Statehouse to the state line and beyond.

The Marcellus Shale Coalition in Pennsylvania, where the Mahoning and Shenango rivers converge to form the Beaver River, put out a press release on the state of water quality in Pennsylvania.

It touted the Monongahela River being named Pennsylvania’s “river of the year” and highlighted efforts to closely monitor the Susquehanna River.

“We wanted to take a holistic look at water management along two main arteries that coexist alongside natural-gas operations. The coalition felt it was important to address that water quality is getting stronger,” said Travis Windle, coalition spokesman. “You’re never going to have 100 percent agreement on an issue like fracking, or anything else. We want to show that we can have both — natural gas and clean water.”

Stewart, of the Ohio Oil and Gas Association, indicated that society has changed, and the industry must be held responsible in recognizing those changes — actions such as Lupo’s will not be tolerated — but he added that more and more, the country’s future depends on cooperation between the industry and modern society.

“The resource play has fundamentally changed energy policy, our relationship with foreign oil producers and geopolitics in general. There’s no going back,” Stewart said. “The fortunes of regular Ohioans are intrinsically tied to our success as an industry. There’s going to be ups and downs, but we have to be successful. I think we will be.”